Friday, 19 October 2012

Labour's economics really is bad at times (updated)

Fisher and Paykel appears destined to be sold offshore while the National Government passively waves goodbye, which is a blow to innovation and skilled jobs in this country, says Labour’s Economic Development spokesperson David Cunliffe.

“The threat of an overseas takeover of Fisher and Paykel is now very real and the likelihood of excellent skilled jobs going overseas is worryingly high.

“Fisher and Paykel is a Kiwi innovation icon. It is the sort of company we need more of in New Zealand, not less. But National is just waving it goodbye.

“The implications of its sale to New Zealand are too important leave the takeover approval to officials. Such a major decision must be made by Ministers. That’s Labour’s policy.

Why does changing the ownership of F&P affect the likelihood of the firm changing where it makes its products? If it is profit maximising for a foreign owned F&P to make products overseas - and thus having "excellent skilled jobs going overseas" - then it must also be profit maximising for a New Zealand owned F&P to make their products overseas. The location of production is independent of the nationality of the owners of the firm. A New Zealand owned F&P can outsource its production if it is in the interests of the firm to do so, in exactly the same way as a foreign owned F&P can do so.

Also you do have to ask why "officials" have a say in the takeover of the firm. Such a decision is best left to those people that have the best information and best incentives to make the decision, that is, the firm's owners.

About the only thing worse that having officials interfering with the takeover decision is having politicians interfering in that decision. A takeover decision should be made on the economic merits of the offer, not on some opportunistic political grounds. Politicians have no knowledge or understanding of the company or the merits of a takeover bid and have quite possibly the worst possible set of incentives for making such a decision. They are the last people who should be involved.